Nickel Stays Hot

Updated from 11:53 a.m. EDT

Prices of nickel were soaring to new highs Tuesday as available supplies of the metal crept lower. Spot nickel was trading at approximately $26,800 a metric ton, off the high's for the day, but still up over 7% as stocks of the metal on the London Metal Exchange (LME) slipped 889 tons to 8,904.

"There are no particular reasons why prices should stop here," says Neil Buxton, managing director of GFMS, a London-based specialty consulting company. "In the short term, there isn't enough nickel in the market."

Although at some point consumers of the metal, mainly stainless steel producers, may start substituting less expensive materials, right now there seems to be "no relief in sight," Buxton adds.

Steel producers can produce a form of stainless steel that uses less or even no nickel, but there tend to be durability concerns for such products. So far, however, steel mills have been able to pass nickel price increases through to the buyers, says Buxton.

Meanwhile, Swiss miner Xstrata raised its bid for Canadian nickel miner Falconbridge ( FAL) to value the whole firm at approximately $20 billion, up from $18 billion. Shares of Falconbridge were recently trading up over 1%, as were those of Canada's other nickel miner Inco ( N). Inco and Falconbridge previously agreed to merge with massive U.S. copper producer Phelps Dodge ( PD), which was also trading slightly up.

Falconbridge announced it would analyze the offer before responding to shareholders formally.

Further exacerbating a tight market, the Bush administration yesterday said it would crack down on exports of the metal from Cuba, citing Castro's repressive regime receives half its foreign exchange income from sales of nickel, according to a report posted on the Toronto Globe and Mail's Web site.

Copper futures were also strong, with prices rising 5.25 cents to $3.635 a pound on the Comex division of the New York Mercantile Exchange (NYMEX). Although LME stocks were reported up 2,265 tons to 92,225 tons, supply concerns surrounding a possible strike at Chile's massive Escondida copper mine served to boost prices.

"With the labor contract being renegotiated at Escondida, it would be difficult to get bearish on copper," writes William Adams, an analyst with Basemetals.com. He notes, however, that generally high prices in the base metals are "unsustainable."

Shares of aluminum producer, Alcoa ( AA) were trading down almost 5% after record earnings and a red-hot aluminum market were overshadowed by the company's disappointing revenue growth. Shares of Canadian rival Alcan ( AL) were trading down in sympathy.

Precious metals prices all leaped higher following terrorist bomb attacks in Bombay. Comex gold futures closed up $16.8 at $642.90 per ounce, while silver finished higher by 44 cents at $11.54 an ounce. Platinum's NYMEX session ended up $23 at $1,254 an ounce, and palladium closed at $329 an ounce, up $5.

Shares of the bullion exchange-traded funds (ETFs) iShares COMEX Gold Trust ( IAU), streetTRACKS Gold Shares ( GLD) and iShares Silver Trust ( SLV) surged, in line with metals prices.

The introduction of the silver ETF earlier this year was a boon to the silver market and will likely continue to help the bullish case for the so-called white metal, according to a report by Scotia Mocatta, the metals trading branch of Scotiabank.

"Indeed it looks like the investment side of the silver market will become an increasingly important feature and may end up enabling silver to sustain higher levels," says the note.

Shares of silver miner Coeur d'Alene Mines ( CDE) were trading up 3%.

Shares of Barrick Gold ( ABX) and those of Newmont Mining ( NEM) were both trading up.

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